The foreign exchange market reacted temporarily by strengthening the Norwegian krone exchange rate by about five euros against both the euro and the dollar after the Norges Bank announced that its key policy rate would rise by 0.5 percentage point to 1.25 percent.
The krone exchange rate had several nervous effects before and after the rate hike, but it settled throughout the day at 9.98 NOK to the dollar and 10.50 NOK to the euro.
Despite its strength on Thursday morning, the krone remains at historically weak levels against both the euro and the dollar.
Up front, there was rarely much tension associated with the interest rate meeting, and market participants were divided over whether to expect a rate hike of the usual 0.25 percentage point, or twice the rate of 0.50 percentage point.
First double in 20 years
Most Norwegian experts expected the regular interest rate to increase by a quarter of a percent.
However, central bank governor Ida Waldenbach surprised and raised the interest rate twice – the first in 20 years.
At the same time, she warned of higher interest rates in the future.
– As we now assess the outlook and risk profile, the key policy rate is likely to rise to 1.5 percent in August, Waldenbach says in a press release.
Still too weak
In recent weeks and months, the krone has weakened significantly in line with the global stock market’s decline – especially against the dollar, which is now at its most expensive since fears of the Corona pandemic swept the markets in the spring of 2020.
The weakness of the krone in recent weeks has surprised the central bank economists, and they write in the monetary policy report that this is due to the fact that uncertainty in global financial markets has increased.
“If international uncertainty eases faster than expected, the krone may strengthen more than expected. Should the oil price fall further or financial market uncertainty persists, the krone may remain weaker than expected,” the report states.
Frank Gollum, chief economist at Danske Bank, thinks Norges’ global growth outlook is very optimistic.
He said in a comment on the interest rate decision.
At the same time, energy prices are likely to remain relatively high, and financial conditions have deteriorated significantly, he adds.
Furthermore, Gloom notes that he believes the central bank will raise the benchmark rate by 0.25 percentage points in the remaining four rate meetings this year, so that the key policy rate will be 2.25 percentage points by the end of the year. (Conditions)Copyright Dagens Næringsliv AS and/or our suppliers. We would like you to share our cases using a link that leads directly to our pages. All or part of the Content may not be copied or otherwise used with written permission or as permitted by law. For additional terms look here.